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Earnings at McKesson missed the Zacks Consensus Estimate by a penny last quarter. Let’s see how things are shaping up this quarter.

Factors at Play

We note that McKesson completed its acquisition of PSS World Medical in Feb 2013. PSS World Medical was merged with McKesson’s Medical Surgical Distribution business. The addition of PSS Medical business should boost the company’s portfolio.

During the fiscal fourth quarter, McKesson undertook a comprehensive strategic review and decided to sell its 49% equity stake in Nadro S.A. de C.V., a privately-held pharmaceutical distributor in Mexico. McKesson also decided to realign its Technology Solutions segment and plans to divest its International Technology and Hospital Automation businesses.

We are impressed by the company’s efforts to realign its portfolio and focus on core profitable businesses. However, generic launches are expected to be slower in 2013 compared to 2012. Hence, we believe fiscal 2014 will be challenging for the company, given the slowdown in generics.

Earnings Whispers?

Our proven model does not conclusively show that McKesson will beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP (Read: ZACKS EARNINGS ESP: A BETTER METHOD) and a Zacks Rank #1, #2 or #3 to be able to beat Zacks Consensus Estimates. That is not the case here as you will see below.

Zacks ESP: The ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is 0.00%. This is because both the Most Accurate Estimate and the Zacks Consensus Estimate currently stand at $1.74.

Zacks Rank #2 (Buy): McKesson’s Zacks Rank #2 when combined with a 0.00% ESP makes us expect in-line earnings from the company this quarter.

We caution against stocks with Zacks Ranks #4 and #5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Other Stocks to Consider

Here are some other companies you may want to consider as our model shows that they have the right combination of elements to post an earnings beat this quarter:

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